What Is a Title Company
Are you thinking of buying a new home? Searching for a new home can be fun but the process of buying it can be confusing and overwhelming! Titles, Insurance, and Deeds!? Oh my!
There are a lot of parts in the process. But once you identify and understand all of the elements, you’ll find it’s much more manageable.
Let’s start by understanding everything about the title company – what do they do, what should you expect from them, and why you need one.
What Is a Home Title?
Simply put, a home title is a piece of paper that says you own the property. This is different from the mortgage or property deed.
A mortgage is the financing or loan for the property. You do not need to be on the mortgage to hold the title to a house. Nor do you need to be on the title to hold the mortgage. But if there is a mortgage, that information will be on the title.
A property deed is a legal document that transfers the property from the old owner to the new owner. It contains a description of everything included in the property and is signed at the closing of the home.
What Are the Roles of a Title Company
When you’re buying a home, the title company verifies that the seller has the right to sell the house to you. Once they’ve verified that, they guarantee it with title insurance.
The title company may conduct the closing on your new home. And, if there is any money put in escrow for the sale of the home, they will usually be the holders of that as well.
What Does a Title Company Do?
There are multiple things a title company does to secure the title. All of them are essential to the home buying process.
The first thing that happens is the title company will do a title search. They look for anything that would impede your ability to purchase the home. They want to make sure the person selling the property does in fact own the property and no one else can claim ownership.
Some of the things they look for in a title search include outstanding mortgages or liens on the property that have not been paid off. They check to see if there are any tax liens or judgments on the property. They’ll determine if there are any leases renting the property to someone else. Or easements giving someone else the right to use the property for a specific purpose (such as farming or parking space).
They may also conduct a survey of the property. They will confirm or determine the boundaries of the land the home sits on and if there are any encroachments to the property. For example, does the neighbor’s fence sit on your property instead of theirs.
Abstract and Opinion Letter
Once the title research and property survey are complete, they issue a title abstract. The title abstract outlines the history of ownership. It tells you about any court records related to the property including tax sales and court litigation. You and your mortgage company will both get a copy of this abstract to review before you close on the home.
Next, the title company writes an opinion letter. This says the current owners have a valid title to sell the property and they, the title company, are comfortable insuring the title.
The title company provides both owner’s title insurance (for your) and lender’s title insurance (for the mortgage company). This covers both you and your lender in the rare event that anyone comes forward in the future making a claim on the property.
Title insurance is paid for at the closing. Unlike other insurance that you pay monthly or annually, you only pay for the title insurance once and are covered the entire time you own your home.
You may need to put money into an escrow account during the home buying process. This could be for earnest money (a sort of deposit) or the mortgage company may ask for it to ensure you have money for certain expenses.
The money goes into a savings account managed by a third party, which in this case is the title company. Then they will distribute payments according to the terms set up in the agreement.
Finally, the title company manages the closing or settlement of your home. They have an agent or real estate attorney review all of the documents. Then they finalize the deed and transfer the title of the home.
Why Do You Need a Title Company or Title Insurance?
Your home is most likely the most expensive purchase you will ever make. So, when you spend that much money, you want to make sure that you actually do in fact own it. The last thing you or your mortgage company wants is for someone else to make a claim on it.
The more people who have owned a particular home, the more potential opportunities for someone to make a claim to the house. It could be a prior owner or someone who had put a lien on the home.
If someone were to make a claim, the legal fees to dispute it would be very expensive. When you’ve had a title company do their due diligence and guarantee it with title insurance, they are the ones who must provide the legal defense. And, even in the remote, worst-case scenario, if they win and you lose your home you have the insurance money to purchase a replacement home.
Clarity and Peace of Mind
Moving into a new home is an exciting event. Don’t be overwhelmed by the process, but understand how it’s set up to help you feel secure in your purchase. A title company works for you. They can answer all of your questions regarding title searches, title insurance, escrow accounts, and your closing.
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